Unless you’ve been camping out in Tibet for some time, it’s been hard to miss the news that Dubai is booming. The place is already home to the world’s tallest office tower; new residential islands bigger than San Francisco are under construction in the Persian Gulf; the Dubai government has ordered up an amusement complex the size of Paris. And according to Stephen Roach, chief economist at Morgan Stanley, 20% of the world’s construction cranes are operating in Dubai. To put it another way, Dubai is a swaggering, hyperthyroid boomtown, reminiscent of Texas cities during the banking, oil, and construction fevers of the 1980s. In relation to its neighbors, certainly, it’s the most attractive place for a thousand miles around—a mecca of shoppers, vacationers, pensioners, ambitious expats, and worldly corporations.
Even more impressive, tiny Dubai—it’s both a city and a state in the United Arab Emirates (UAE), and is only half again as big as Rhode Island—may transform not just itself but also the economy of much of the Middle East. Its successful launches of vast, well-run projects, including the profitable and popular Emirates airline, spectacular hotels, and a huge medical complex blessed by Harvard Medical School, have been noticed by its neighbors, such as Saudi Arabia. Now they too are spending far more on infrastructure improvements, health care, and long-term growth that will help build economies not entirely dependent on oil. Indeed, the recognition that Dubai was likely to run out of that very commodity is what spurred its ruler—His Highness Sheikh Mohammed bin Rashid Al Maktoum, who’s in his late fifties—to steer Dubai in this new direction some 15 years ago.
The question, of course, is whether your company should join the party. Dubai deserves a serious look from just about any corporation—or individual, for that matter—capable of delivering world-class managerial or creative ability. “There’s simply not enough homegrown talent to keep up with all the things they want to do,” says Ayman Haddad, managing partner of the Middle East and North African region for the executive recruiting firm Heidrick & Struggles, which is opening a Dubai office.
Middle East investing is not trivial. The six countries that make up the Gulf Cooperation Council—Saudi Arabia, Kuwait, and the UAE among them—have a combined GDP of some $750 billion, which puts the group between Australia and Holland. Morgan Stanley’s Stephen Roach says that what’s happening in Dubai may be “emblematic of a new Middle East.” The entire region could become a much bigger, more rewarding, and easier-to-navigate market than it has been in the past. “There will be no turning back,” says Roach. “In a world where the globalization debate is dominated by China, it’s high time to broaden our horizons.”
Dubai’s transformation has drawn hundreds of corporate players, including General Electric, Gillette, Halliburton, Microsoft, and Starwood Hotels, and many have made Dubai their regional headquarters. One of the first to do so was Gillette, which considered setting up a local base in a number of places, including Cyprus, but opted for Dubai in 1988. “I could see how the government was changing its attitude about attracting companies,” says Samir Hadad, a former Gillette vice president for the Middle East and Africa who now runs Stargate Advisory Group, a consulting firm that advises foreign companies on how to set up shop or expand in the region.
Dubai has created a dozen special zones, each dedicated to a single industry such as banking, telecom, health care, or Internet services, and has encouraged corporate newcomers to locate among their ilk. This clustering seems popular. Microsoft operates from a shiny new four-story office building overlooking a verdant park and pond. Zaid Abunuwar, a Jordanian who has worked for the company for 10 years, five of them in Dubai, heads a 40-person team that trains distributors and resellers all over the Middle East. To Abunuwar, Dubai is the right place to be. “The Internet, the telecom, the airlines are all excellent,” he says. As more companies move into the neighborhood, it becomes an even more attractive and practical place to do business. “I can walk down the street and talk to my counterpart at Hewlett-Packard,” says Abunuwar, gesturing out a window.
Other American companies are equally pleased to be in Dubai. Says John Lancia, GE’s director of public policy and strategic planning in the Middle East: “What Dubai has done successfully is, they’ve made a very friendly environment for multinationals or small business to do business from.” For GE, that means helping to develop infrastructure all over the region, from locomotives and jet engines to desalinization plants and electrical generators, as well as selling its washing machines and light bulbs. “They like and admire American brands here, no question about it,” Lancia says. “This is one heck of a market for GE. It’s becoming one of the highest-growth regions for the entire company.”
Some caution is warranted on the part of companies considering the plunge. For one thing, Dubai isn’t the place to set up a manufacturing plant; there’s no pool of cheap local labor. And maybe some industries are reaching the saturation point. Foreign bankers with local roots are complaining about the influx of competitors that has pushed the total number of banking firms to about 30. “People complain that so many banks have come there that they’re giving business away to get market share,” says an American executive at a big European bank. You’d think the Koran’s ban on riba , or interest, would make life tough for this particular industry. Not really. Instead of lending money to various projects, banks must invest in them and then collect profits by taking a cut of the earnings or, in the case of real estate investments, the rents. To ease the whole process, Dubai has established the Dubai International Financial Center, a special zone where corporate occupants have to comply with international banking regulations rather than the Koran. This has proved so popular with foreign bankers trying to get some Dubai action that there’s now a flurry of construction of new office towers to accommodate them.
Who should be in Dubai? For starters, just about anybody selling luxury goods. “Buyers are seeking the best,” says Thomas Bradtke, one of the principals in Boston Consulting Group’s local office. “In some ways this is an odd market. The biggest, most expensive cars—BMW and Mercedes—outsell the smaller, less expensive ones.” Since the unabashedly wealthy from all over the Middle and Far East already come here to shop, the shopping malls are crammed with top-of-the-line brands, from Hugo Boss to Tiffany. Cruising malls is a major diversion for people living in and visiting Dubai. But retailers have to be careful. Some mall walkers are just killing time, and older malls can go out of fashion quickly. Says Philip Schneider, a Chicago-based corporate-relocation consultant for Deloitte: “When a mall is three years old, how many people keep going to it?”
For now, real estate construction is the hottest business in town, and many U.S. companies have won big roles. Chicago architects Skidmore Owings & Merrill LLP designed the Burj Dubai tower, which will stand maybe as high as 2,600 feet when it is completed in 2008. New York City construction-services company Parsons Brinckerhoff is supervising the construction of those offshore islands. Carrier Corp., Trane Corp., and other manufacturers of air-conditioning systems are cooling off what gets built. Caterpillar earthmovers are everywhere.
It’s unlikely that U.S. producers could compete with low-cost steel and concrete suppliers from nearby India. But Dubai is hungry for top engineering, architectural, and planning expertise and recognizes American companies as often the best in the world at those disciplines. Even smaller companies can play in this market—witness a Wisconsin outfit called Spancrete Machinery Corp. It manufactures equipment that produces precast, prestressed hollowcore concrete slabs and wall panels used in residential and commercial construction. The company attended a trade show in Dubai a while back, sold one of its machines to a local buyer, and is now helping this new customer set up its own slab-building business.
The current spasm of office and apartment construction will probably slow in a year or two, but some mammoth building projects will remain. Dubai’s existing airport on the north end of town is already jammed—at 2 a.m. you have to walk sideways to get through the crowds—and is being expanded. A second airport to the south, toward Abu Dhabi, is just being built. Next up: Dubailand, a colossal entertainment center, and Dubai Medical City, a big health-care complex. Both will be providing work to designers, consultants, and vendors for years.
At the moment, Dubailand, perhaps the most grandiose of all the projects rising from the drawing boards, is just a cloud of dust on the outskirts of town. But it is slated to cover three billion square feet when it’s done, with half a dozen stadiums, racetracks, and golf courses, one designed with input from Tiger Woods. Universal Studios is partnering with a big local construction company, Tatweer, to create one of Dubailand’s amusement parks. Other companies are planning sports academies that promise to make professionals out of talented amateur golfers and soccer and tennis players. There will even be a ski mountain, domed and refrigerated.
Not that skiing isn’t already a Dubai fixture. At the titanic Mall of the Emirates, one of a half-dozen sprawling shopping centers that rival anything in Los Angeles, five ski slopes, the biggest one 400 meters long, rise enclosed and refrigerated on stilts over the city’s streets. Après-skiers can curl up next to images of crackling fireplaces displayed on computer screens at an adjoining restaurant.
The pace of construction is unnerving, as are some of the stresses of living and working here, and the dust-riddled air is tough to breathe. Sheikh Zayed Road, the main drag, is jammed during the evening rush hour, turning a 20-minute cab ride from one side of town to the other into a 90-minute crawl. A lot of traffic is made up of the buses that take construction laborers and low-level office workers on their stop-and-go, two- and three-hour rides to dormitories in tiny (and cheaper) emirates to the northeast. The air and traffic are likely to get far worse as Dubai’s office and residential space triples in the next two years. An elevated train is being built along the main highway, but that isn’t likely to lessen the logistical strain much. Its planned stops lie beyond walking distance from many of the new offices and apartment buildings.
And yet Dubai has a certain exuberant appeal—a Las Vegas without so much in-your-face sin. Visitors and locals alike can choose from dozens of great restaurants, including Biella for Italian and Delhi Darbar for Indian. If you want a glass of wine or other alcoholic drink with your meal, you’ll have to patronize a restaurant located in a hotel, such as the Rib Room at the Jumeirah Emirates Towers Hotel. Nearly all the five-star hotels (39 at last count) have glittering nightclubs that are packed on weekends. You can go for a boat ride along the canals around the Mina A’Salaam hotel. The lobby of the sail-shaped Burj al Arab hotel (where Tiger Woods famously knocked golf balls from the rooftop helicopter pad into the Gulf) is so popular that the hotel now prohibits gawkers. And of course there’s also the opportunity to visit the various local racetracks, including one where camels are the mounts of choice. Okay, so there’s no Louvre, no Metropolitan Opera House. But as a Western salesman encountered at the spectacular Shangri-La Hotel observes, “You want culture, go to Paris. People come here for a good time.”
Much of Dubai’s flavor seems to derive from its ruler, Sheikh Mohammed, who is sometimes referred to as the CEO of Dubai Inc. Anne Jafery, who moved to Dubai from Michigan in 1989 and founded Ink, a publishing, design, and event-planning company, admits to being dazzled: “He’s an amazing leader. He started a process of very long-term planning, which is counter to the traditional Bedouin culture. Before him, the attitude was ‘ Inshallah,’ which means ‘God willing,’ but often meant ‘when I get to it.’ That has totally changed.” Nowadays, says Jafery, “there’s a joke that when the sheikh says jump, people don’t say, ‘How high?’ They say, ‘When can we come down?’”
The sheikh and his forebears also get credit for making Dubai one of the most tolerant places in the Middle East. In contrast to hyperstrict Saudi Arabia, women in Dubai are free to hold jobs, go about without scarves or veils, associate unchaperoned with men, and drive. Less-than-devout Arabs from all over the Middle East can be seen standing and drinking alcohol at the clubs in local hotels, but this doesn’t mean that Emiratis, as people from the region are called, are casual about their religion. Says Thomas Bradtke of Boston Consulting Group: “They’re Western in attitude but speak to the protocols of religion. So it might look liberal, but the people stick to what is required.”
For all the changes the government has made to modernize and foster growth, newcomers will be irked by some clunky rules on starting and running a business that apply across the UAE. One of these is that most businesses must be majority-owned by an Emirati. If you’re a foreign company looking to open a hotel or establish a chain of stores, you will have to find a local partner. Some, in fact, bring both expertise and capital to the deal. Even if they don’t, “it’s not quite as bad as it sounds,” says Sameer Alibhai, a Canadian who moved to Dubai years ago and is involved in various businesses, including real estate. “Both parties usually sign another piece of paper saying the local guy doesn’t really run or control the business, and instead of half the profits, he gets a flat fee.” (Fees typically start at less than 30,000 dirhams, or about $8,300 a year, for smaller deals but can run as high as $500,000 for companies with revenues of over $50 million.) Changing partners is not difficult, Alibhai says. “I just did it. It’s no big deal.”
Even more encouraging, the UAE is working on a new law that would open various parts of the service sector to full foreign ownership, probably including health care and education, and would invite further foreign participation in financial services like insurance. This could happen by the end of the year.
Finding talent to run a business may be difficult. Almost all the potential candidates in town are foreigners and governed by elaborate rules about whom they can work for and how long they can stay. A foreign employee who quits a job must return home for months and then reapply for a work visa. “It’s an employer’s paradise,” one Western business owner says. “Foreign employees can’t leave for higher pay.” Hiring a local brings its own frustrations. Many Emiratis grew up supported by a generous, oil-rich government that provided cheap housing, health care, even travel, and didn’t put a premium on hard work or education. That stopped a few years ago, when the current sheikh declared an end to the free lunch. But a sense of entitlement still exists, observes one Westerner, and a new rule requires any business with more than 50 employees to hire at least one Emirati.
Dubai is trying to close the ability gap. Among other things, it has developed a three-year executive-education program with the University of Pennsylvania’s Wharton School to train some 40 potential business leaders per year. “We’ve brought them to the United States, to Hong Kong, and to Singapore,” says Wharton professor and academic program director Bulent Gultekin. Dubai, of course, picks up the tab.
Other emirates are following close on Dubai’s heels as places where Westerners can set up businesses and make money for themselves and their hosts. For now, though, Dubai, with its booming, opportunity-rich economy, has the clear lead. And if it can throw a martini and a ski slope into the mix, well, where else would you want to go?
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